Alaska Air is a major player in the West Coast-Hawaii air travel market today. In fact, the carrier says it operates more flights between the West Coast and Hawaii than any other airline — an average of 29 daily round trips.
However, competition is increasing rapidly. Last year, industry capacity between the western U.S. and Hawaii surged 10.7% — largely driven by United Continental and Hawaiian Holdings (NASDAQ: HA) — putting pressure on fares. Industry capacity growth is set to accelerate again over the course of 2019, as Southwest Airlines (NYSE: LUV) moves into Hawaii for the first time. This action could potentially provoke more fare wars.
Let’s look at whether Alaska Airlines has the tools to remain successful in Hawaii as the competitive environment changes.
Hawaii is an important market for Alaska Airlines
Alaska Airlines entered the Hawaii market relatively recently, launching a Seattle-Honolulu route in late 2007. Within two years, it was operating an average of more than seven daily round trips to Hawaii from its main operating bases in the Pacific Northwest — Seattle, Portland, and Anchorage.
Alaska Airlines began flying to Hawaii less than 12 years ago.
However, about half of Alaska Airlines’ flights to Hawaii originate in California today. That’s because Aloha Airlines and ATA Airlines — historically big players in the California-Hawaii market — both folded in 2008. Alaska stepped in to fill that vacuum, adding numerous routes to Hawaii from cities such as Oakland, Sacramento, San Diego, and San Jose.
For most of the past decade, it faced limited competition in these markets. The legacy carriers were retrenching from routes outside their hubs, Southwest Airlines didn’t fly to Hawaii, and Hawaiian Airlines couldn’t serve midsize markets profitably, because of its reliance on widebody jets with more than 250 seats for its West Coast flights.
As a result, Hawaii flights now account for close to 15% of Alaska Airlines’ capacity. But the conditions that enabled Alaska’s big expansion in Hawaii are disappearing.
Strategy changes at two key rivals
The first change to the competitive environment came with Hawaiian Airlines’ decision to order the 189-seat Airbus A321neo to complement its widebody fleet. Since the beginning of 2018, Hawaiian has used its A321neos to enter several markets where Alaska Airlines previously offered the only nonstop flights, including San Diego-Kahului, Oakland-Lihue, and Sacramento-Kahului.